On
British American Tobacco Bangladesh
Prepared By:
Md. IstiakUddin
ID: 10204124
BRAC Business School
Date: 24th November, 2013.
1
Letter of Transmittal
Date: 24th November, 2013
To
Ms. Afsana Akhtar
Lecturer
BRAC Business School
66, Mohakhali
Dhaka-1212.
If you need any further clarification for any part of this Internship Report, I am eagerly always
ready to provide any kinds of information regarding this Internship report on British American
Tobacco Bangladesh Ltd.
Yours Sincerely,
_____________________________
(Istiak Uddin ADI)
ID NO: 10204124
BRAC Business School
BRAC University
2
Acknowledgement
My acknowledgement begins by thanking my Supervisor Afsana Akhter, who has provided me
with suggestions for making this Final Internship Report and also provided me with the format
for preparing this report. I would like to show my warm-hearted gratitude to the Supply Chain
department of British American tobacco Bangladesh Ltd; which has provided me with great deal
of information, adequate data and lastly cooperated me for the accomplishment of this report
successfully. Finally, last but not the least, I would like to thank each and every Staffs of the
different supply chain section of BATB specially Mr. Masud Uddin Bhuiyan (Manager
manufacture services), for his kind assistance regarding the report Without whom it would not
possible for me to complete this difficult task, I got all necessary guideline, cooperation, advice
from them to complete this complicated task. I am very much thankful to British American
Tobacco Bangladesh Ltd, its management, especially employees of Supply Chain for their
cordial support to prepare this difficult study with important information and data.
EXECUTIVE SUMMARY
As a well renowned successful industry British American Tobacco Bangladesh has proved its
standing in counting prominent industry in Bangladesh. It plays a great significant role in
Bangladeshi economy. As we know British American Tobacco Bangladesh is one of the largest
multinational companies in the country and has been operating for over 100 years more than
180 markets around the world.
Corporate and regulatory affairs are responsible for maintaining the process and internal
communication is a part of that. Internal is responsible for communicating corporate projects,
events, achievement; providing counseling service for cross functional teams and generating
positive shift in employee comprehension of company objectives and directions. It helps to
ensure that the employee at all levels have an understanding of the business and are able to
engage and inspire individuals them to deliver winning performance.
With all its quality services and commitments the industry has won many hearts and as well as
the confidence of the consumers over them. In business analysis at different situation BATB has
to go under different strategies.
The best companies around the world are discovering a powerful new source of competitive
advantage. It's called supply-chain management and it encompasses all of those integrated
activities that bring product to market and create satisfied customers. The Supply Chain
Management Program integrates topics from manufacturing operations, purchasing,
transportation, and physical distribution into a unified program. Successful supply chain
management, then, coordinates and integrates all of these activities into a seamless process. It
embraces and links all of the partners in the chain. In addition to the departments within the
organization, these partners include vendors, carriers, third party companies, and information
systems providers.
Within the organization, the supply chain refers to a wide range of functional areas. These
include Supply Chain Management-related activities such as inbound and outbound
transportation, warehousing, and inventory control. Sourcing, procurement, and supply
management fall under the supply-chain umbrella, too. Forecasting, production planning and
scheduling, order processing, and customer service all are part of the process as well.
Importantly, it also embodies the information systems so necessary to monitor all of these
activities.
4
TABLE OF CONTENTS
CHAPTER 1: THE ORGANIZATION
1.1INTRODUCTION8
1.2 HISTORY 9
1.3 PRODUCT & SERVICE OFFERING 10-13
1.4 STRUCTURE OF THE ORGANIZATION
14
1.5 CORE BUSINESS ACTIVITIES 15
1.6 CORPORATE SOCIAL RESPONSIBILITIES 16
1.7 CORPORATE AND REGULATORY AFFAIRS (CORA)17-19
1.8 SWOT ANALYSIS
20
CHAPTER 2: JOB
2.1 NATURE OF THE JOB
2.2 SPECIFIC RESPONSIBILITIES OF THE JOB22
2.3 ASPECT OF THE JOB
23
2.4 RECOMMENDATION
21
22
23
CHAPTER 3: PROJECT
3.1 SUMMARY25-26
3.2 OBJECTIVE OF THE STUDY
27
3.3 SCOPE
27
3.4 STATEMENT OF THE PROBLEM 27-28
3.5 LIMITATION
29
3.6 BACKGROUND OF THE COMPANY30-33
3.7 VALUE CHAIN ANALYSIS
34
3.7.1INBOUND LOGISTICS
3.7.2OPERATION36-40
3.7.3OUTBOUND LOGISTICS
40-43
3.7.4 DEPARTMENT OVERVIEW
43-53
3.7.5SERVICE
53
3.7.6 FIRMS INFRASTRUCTURE
54
3.7.7HUMAN RESOURCE MANAGEMENT 55-56
3.7.8TECHNOLOGICAL DEVELOPMENT 56
3.7.9PROCUREMENT
56
3.7.10CORE BUSINESS PROCESS
3.8 METHODOLOGY
58-66
3.9 SIGNIFICANCE OF THE STUDY
67
3.10LIMITATION OF THE STUDY
3.11DISCUSSIONS AND RECOMMENDATIONS
3.12CONCLUSION
3.13 REFERENCE
3.14APPENDIX
24
34-36
57
67
68
68
69
70-72
Chapter 1: The
Organization
1.1 Introduction
British American Tobacco is a leading tobacco group, with brands sold in around 180 markets.
We employ more than 55,000 people and with over 200 brands in our portfolio, we make the
cigarette chosen by one in eight of the worlds one billion adult smokers.
Founded in 1902, our Group of companies traded through the turbulence of the 20th century,
including wars, revolutions and nationalizations. The Group was first listed in 1912, and today
we are one of the top 10 companies listed on the London Stock Exchange and feature in the
Fortune 500. We have also had a secondary listing on the JSE Limited in South Africa since 2008.
They hold robust market positions in each of our four regions- Americas; Asia-Pacific; Eastern
Europe; Middle East and Africa; Western Europe- and we are leaders in more than 60 markets.
Our approach to marketing is second to none in our industry, in brand building, innovation and
responsibility. Our companies adhere strictly to the high standards of our voluntary marketing
principles.
In 2012, our subsidiaries enabled governments worldwide to gather more than
30 billion in
duty, excise and sales taxes on our products, more than seven times the Groups profit after
tax.
They play a significant role in local communities around the world. In many countries we are a
top employer and the company of choice for people in all areas of our business. We have 44
cigarette factories in 39 countries. In addition to cigarettes, we cigarillos, roll your own and pipe
tobacco.
They are also proud of their Research & Development facilities, where our people are striving to
reduce the harm associated with tobacco products.
With our geographic diversity, strong brands, talented people and proven strategy, the Group is
well placed to achieve further success. In particular, we are confident that our investments in
both innovative cigarette products and next-generation nicotine and tobacco products will help
us drive.
1.2 History
BAT Bangladesh began its operations in the sub-continent in 1910 as Imperial Tobacco
Company Ltd. After the Partition, Pakistan Tobacco Company (PTC) came into existence with its
head office in Karachi in 1949. PTCs East Pakistan office at that time was situated in
Armanitola, Dhaka and ultimately moved to Motijheel, Dhaka. After independence, Bangladesh
Tobacco Company Pvt. Limited was formed in 1972 with British American Tobacco holding
majority shares. In March 1998, Bangladesh Tobacco Company changed its name and identity
to British American Tobacco Bangladesh pronouncing its common identity with other operating
companies in the Group. British American Tobacco Bangladesh is one of the oldest and largest
multinational companies operating in Bangladesh. The British American Tobacco Group
holds65.91% share in the Company. The Government of Bangladesh owns 26.57% through
several of its agencies, while 7.52% is owned by other shareholders.
We are a public company listed on the Dhaka and Chittagong stock exchanges. The Board of
Directors has nine members a Non-Executive Chairman, four Non-Executive Directors and
four Executive Directors. We are also a leading business organisation in the industrial sector
employing more than 11,000 people directly and a further 60,000 indirectly as farmers,
distributors and suppliers. We have business contracts directly with approximately 45,000
registered farmers who produce high quality tobacco leaf.
Company
Segment
Premium
Medium
Low
Very Low
AbulKhair Akiz
BAT
Benson & Hedges
Lights,
Benson
&
Hedges Full Flavors,
State Express 555
John Player Gold Leaf,
Pall Mall Full Flavors,
Castle, Pall Mall Lights,
Pall Mall Menthol,
Capstan Filter
Star Filter,
Filter
Scissors Navy,
Royal Asian
Marine
Special Legend
K2, Red & White Nasir
Sun
Five Star, Surma Gold, Top Moon
Ten
Gold
Hill
Wilson
10
% Share
Premium
5.4
Medium
18.17
Low
54.68
Very low
21.75
Total
100
% Share
Premium
Medium
Low
Very Low
Total
3%
9%
50%
27%
11%
11
Premium
Launched in 1997, Benson & Hedges (B&H) maintains our dominance in Premium segment and
drives the growth of Premium price segment in Bangladesh market. Within a short time
Bangladesh became a leading B&H market across the British American Tobacco world. Although
the price of B&H was unilaterally increased in 2004, B&H remains a successful brand in our
portfolio. BAT Bangladesh was the first market to launch the new pack of B&H at the beginning
of September 2005. In 2008 B&H has achieved 3 billion stick volume marks for the first time.
Medium
Launched in 1980, John Player Gold Leaf is one of the highest selling brands of our Company dominating the High price segment. In 2005, we launched three flavoured Limited Edition
Product and Packs under the Taste the World campaign, which were extremely well received
by consumers. In July 2006, three Limited Edition Product and Pack (LEPP) were launched under
the campaign Blenders Choice. BAT Bangladesh launched John Player Gold Leaf Smooth in
December 2008. The new cigarette with its enhanced filtration and perforated long filter is
geared to offer smokers a smoother smoking experience with a full bodied flavor.
Pall Mall is the first Global Drive Brand launched in Bangladesh on 19 March 2006. Pall Mall
Lights was the first brand to unleash a mainstream Lights segment, while Pall Mall Menthol
tapped into a latent Menthol segment. As the first brand to offer a range of product choices,
12
stylish beveled edge packs and designer sticks, Pall Mall was able to create particular appeal to
the ASU30. Pall Mall Smooth was launched in Bangladesh market in June 2009
Low
Star, launched 40 years ago, is still a dominant brand in this segment. Currently it is the highest
volume generating brand for the Company. At the same time, the cigarette sticks carried a new look
with brighter paper and bi-color dye. Executive Summary:
Very Low
BAT Bangladesh launched Pilot on 11 October in the lowest segment of the countrys cigarette
market. Insignificant presence in Very Low segment prompted BAT Bangladesh to launch a Tk 1
brand in the segment, which accounts for nearly half of the countrys cigarette market. BAT
Bangladesh does not participate in the birisegments.
13
Overall activities of tile company arc governed by the "Board of Directors" and Executive. The
"Board of Directors" is composed of 10 members headed by a chairman. Chief Executive of
British American Tobacco Bangladesh is called the "Managing Director" who is normally
appointed by "BAT Holdings". Managing Director of the company is the chairman of the
executive Committee. This committee includes the head of all the functional departments.
The decision making, infrastructure is participatory to a very high extent. All the plans and
decisions that are made are communicated from the top level of the organization and the
decisions are made after discussing the issue with the related authority and the grass root
level. Every possible input from every relevant level of workforce is taken before getting into
any decision.
3
14
Tobacco Leaf Growing: There are registered farmers who grow the tobacco in
the regions of Kushtia, Chittagong and Rangpur.
Leaf Processing: The leaf is processed in two factories; the green leaf threshing
factory where the stern is separated fromthe leaf and the Dhaka Factory
(Primary Department) where the leaf cut to make it ready for production.
Cigarette Manufacturing: The cut tobacco is sent to secondary manufacturing
department or the Dhaka Factory where it is combined with wrapping
materials to make the final product. The factory runs in three shifts for 24
hours to give a daily production of around 60 million sticks.
Distribution: The product is sent out to various distribution houses across the
country. The distributors work with the BATB trade marketing team I ensuring
distribution to all retail outlets in the country.
With ever increasing number of outlets (currently, this is one of the major
challenges the company faces.
Brand Activities: With the ban on promotion activities, the company has to
look towards innovative ways of communicating their brands to the cigarette
consumers.
15
16
CORA Strategy:
In BAT Bangladesh CORA roles are clustered within these three sections: Regulatory
Regulatory Affairs
Corporate Social Responsibility
18
Corporate Communication
Regulatory Affairs section is responsible, among others, to promote sensible tobacco regulatory
environment, to advise marketing on compliance with applicable external and internal
standards, and to support Top Team's engagements on excise and other industry regulation
issues. Today, perhaps more than ever, stakeholders expect BAT Bangladesh to use the
company's economic strength for broader social goals and to demonstrate environmental
responsibility, to support the communities, and to behave with transparency and
accountability.
The Corporate Social Responsibility section oversees BAT Bangladesh's corporate social
investment initiatives such as afforestation, various programs in leaf' growing areas, corporate
donations and IT education. In addition, the section also manages the Company's social
reporting process.
Meanwhile, the Corporate Communication section works closely with Regulatory Affairs and
Corporate Social Responsibility to manage the communication of key messages to the external
and internal stakeholders of the Company. This team is also responsible for managing the
companys corporate brand.
19
public
media
vehicle.
Opportunity:
In Bangladesh, tobacco market is pretty strong. Among the sale of all tobacco products, 68%
is Bidi and the rest 32% is cigarette. But with the up gradation of purchasing power and good
economic condition, high rate of migration from Bidi to cigarette is also expected. Even now;
the migration rate is good enough to sustain the cigarette industry. Total no even if reduce,
but the migration will make it sustainable. The cigarette market depends not on increasing
number of customers, but on switching to cigarette brands.
Threat:
Increasing amount of awareness among the consumers about the health hazards
Increasing number of regulations and laws imposed by the government about smoking and
selling cigarettes.
20
Chapter 2: Job
21
22
2.4 Recommendation
Value destroy is one of the biggest drawback of BATB. At lots of sector value destroy like
inbound logistics B&H raw materials comes from comes out side from the country as a result
some time when demand increase B&H they dont provide raw material properly here lots of
value destroy
23
Chapter 3: Project
24
3.1 Summary
Producing a product or service and making it available to buyers requires building relationships
not just with customers but also with key suppliers and resellers in the companys supply chain.
At supply chain department there are different distribution channel. Distribution channel
means a set of interdependent organization that help make a product or service available for
use or consumption by the consumer or business users. The companys effective product flow
depends on the channel behavior.
Horizontal conflicts occur among firms at the same level at the channel. For instance, some ford
dealers in Chicago might complain that the other dealers in the city steals sells from them by
pricing too low or advertising outside their territories.
Customer
Manufacturer
Distributor
Customer
Customer
A vertical conflict between different levels of the same channel is even more common. For
example, Goodyear hard feeling and conflict with its premier independent dealer channel when
it begun selling through mess-merchants dealers.
25
BATB
Producer
Producer
Wholesaler
Retailer
Wholesaler
Retailer
Consumer
Conventional Marketing
Channel
Consumer
At British American Tobacco Bangladesh they follow more conventional Marketing channel. As
they have divided the market in different territory. In each territory they have wholesaler who
are appointed locally. Those wholesalers have the products directly from the company. The
wholesaler duties are to make sure the retailer having the products at right time and right
amount.
26
3.3 Scope
The study was limited to the permanent employees of British American Tobacco Bangladesh.
No comparison or analogy has been drawn taking other BAT companies or other tobacco
companies in Bangladesh. The survey respondents were asked questions about the tools and
services driven by BAT Bangladeshs CORA Communications team. Other forms of
organizational communication were not taken into consideration.
Goldman Sachs named Bangladesh one of the "Next Eleven", along with Egypt, Indonesia,
Vietnam and seven other countries.
Like other industries tobacco industry is also experiencing growth over the last years. It has
been seen that in Developing countries the number of smokers are higher than the developed
countries. The tobacco industry is mainly driven by young population growth and innovative
value chain strategy.
This research will find out the important factors affecting value chain strategy B&H and will also
investigate BATB performance against its competitors. This research will also expose the
expected service level of the most important factors of BATB customers
Questionnaires
28
3.5 Limitations
Although while conducting the survey, the employees of BAT provided great support but there
were sonic unavoidable problems that worked as limitations.
Though some questionnaire was sent outside Dhaka, but the number was not
substantial, so the survey results are biased towards die employees of the Dhaka
Head office to some extent.
But with the non-management workers, it was a bit difficult to make them
understand the scale and rating, and in some cases, they gave wrong ratings.
Getting the factory workers in the working hours was a bit difficult, so 1 had to wait
for the road show. I was able to attend only one road show as others were
scheduled in the night shift.
29
Market Size: Total tobacco industry is segregated into two broad categories: Cigarettes and
other tobacco related products like, Biri, Chewing tobacco (Jarda), Pipe tobacco etc. Dominating
segment is the Biri, Jarda segment. Around 72.6% 1 population who takes some kinds of tobacco
products smokes Biri or takes other forms of tobacco products. Cigarette Market consists of the
rests 27.4%. Industry trend indicates that cigarette segment is increasing gradually, as up
trading from Biri and other tobacco products to cigarette is taking place.
27.4%
72.6%
Cigarette
Market Segment: The tobacco industry is divided into four-market segment: Premium, medium,
low and very low. Very low is the most potential segment in volume terms, as this segment is
the stepping-stone for up gradation from Biri to cigarette segment.
30
37.74
40
35
30
35.34
21.83
Premium
25
20
15
10
Very Low
Low
5.09
Medium
Medium
Low
Very Low
Premium
1
Analysis: From the above graph it is clearly visible that the very low segment has the highest
potentiality with a segment share of 37.74%, compare to premium segment of holding 5.09%,
medium share 21.83% and low segment share 35.34%.
Customers: Mostly Adult male, Urban, Semi-Urban and Rural.
Scope of Competitive Rivalry: National. Different tobacco related products including cigarettes
by different local companies are also available in the local markets in different geographic
locations in Bangladesh.Major players in the industry are competing more in the entire national
market in Bangladesh.
Stage in the Growth Cycle: In the tobacco industry, cigarette market is at Growing Stage as
switching tendency from Biri to very low segment is increasing gradually. Biri market and other
tobacco products are in saturation and declining stage respectively.
Market Growth Rate: Market size of the industry indicates market growth rate.The industry
growth depends entirely on the country economy and the amount ofdisposable income of the
population. Tobacco Industry growth rate is 1-2%annually. But this year (2012), cigarette
market growth rate is about 8-9% and it isexpected to continue in the coming year as well.
Number of Rivals and their relative sizes:In Bangladesh Tobacco industry, there are morethan
100 companies playing around.British American Tobacco Bangladesh is the market leader in all
31
segment of the market with 47% volume share and 70% value share, followed by Dhaka
Tobacco Industries, Alpha Tobacco and AbulKhair Tobacco.
COMPETITIVE SCENARIO
BAT
DTI
Alpha
AK
Nasir
47%
17%
5%
6%
5%
Trading Profit
99 (Tk. Min)
476
100
21
71
N/A
Trade 20%
67%
72%
67%
40%
960
630
440
250
260
Maximum
Margin
Sales Force
These companies in the industry are competing among themselves both domestically and
nationally. Apart from all the tobacco companies, one external threat is very active in the
market and that is transit products (smuggled one) that particularly compete in the premium
and super premium segments.
Product characteristics: The products can be classified as a Fast Moving Consumable Goods
(FMCG) with a highly personalized characteristic due to variant consumer choice (Full flavored
Virginia, US Blends, and Low delivery), brand preferences (Brand Image) and the affordability of
the brand.
Distribution Channels: Large companies in the industry usually have their own control on
distribution. In some cases, large as well as small companies have retailers channel to access
the buyers. In the cigarette industry, as market is huge, it is not economically feasible and
manageable to have access to the ultimate consumers directly. In most of the cases,
distributors are playing the vital role between the companies itself and its targeted smokers/
consumers.
BAT Bangladeshis not an exception. It has 60 distributors operating all over the country bridging
the gap between the two extreme parties. Though distributors are independent yet, BAT
32
Degree of Differentiation: Consumer tastes and preferences are not static. It changes over time
and experience. Brand image and internalization matters a lot. To capture the target market
and to sustain the existing one, tobacco companies need to survey continuously about their
product quality and taste whether it matches with the expected level of satisfaction. The
market leader BAT Bangladeshconducts consumer product tests time to time and changes the
blends of its brands according to the consumer need.
Resource Requirement:
High technology, skilled human resources and experienced
management team with high managerial and technical competencies.
Ease of Entry and Exit: High capital requirements make entry and exit difficult. Moreover,
stringent government regulations are there for setting up new tobacco companies in the
industry.
Economies of Scale: High. As a capital-intensive industry, product quality and consistency are
key factors for success in the business. So, achieving economies of scale and capacity utilization
are very significant economic factors.
Learning and Experience Curve Effect: High. It is especially important for those companies
competing in the upper segment in the market to achieve economies of scale and also
competing with the international brands in the market. Consumer tastes, preferences and
choices are continuously changing. For instance, a shift towards low delivery of cigarette is
completely new in Bangladesh cigarette industry. To meet the recent changes in consumer
demand, technological changes are required. Therefore, scale of economy can only be possible
through learning and experience.
Capacity Utilization: Required to achieve low cost production efficiency.
Industry Profitability: Above par. But this is possible, only when the firms are cost focused, and
the market is price sensitive.
33
34
In the very low and low price segment, readily available and attractive priced substitute creates
competitive pressure by placing ceiling on the prices. However, firms need to find out ways of
cost reduction to be profitable.
Entry Barriers:
Entry barrier is a strong force in the industry as the industry is very attractive in terms of growth
and profitability.
The main barriers for potential entry are:
Governments lawful barrier/restrictions for setting up new tobacco industry.
Huge capital investment and extensive R&Drequirements.
Ample resource requirements.
Access to technology and specialized know how.
The experience of learning and experience curve effects: lower unit cost is a
result of experience in producing the product in a large quantity.
Economies of scale: high economies of scale in manufacturing make new
entry costly and risky.
Brand image, preferences and customer loyalty.
Possible way of entering into this industry is through merger or acquisition or strategic alliances
through licensing with international manufacturer.
Power of Suppliers
The power of suppliers over the firms that depends on outsourcing of raw
materials including tobacco leaf, wrapping materials, filters, cigarette papers
and so on, is not so significant.
As cigarettes are classified as Fast Moving Consumable Goods and produced all over the world,
all the firms have the leverage to choose the wrapping materials from anywhere in world.
Tobacco for medium and low price segment cigarette is grown in Bangladesh and is capable of
fulfilling the entire industry demand. 18-20% tobacco for premium priced cigarette is also
grown in Bangladesh and around 80% high quality tobacco is imported from different tobacco
growing countries.
Therefore, suppliers tend to have less leverage to bargain over price and quality.
35
Power of Buyers:
The bargaining power of buyers is high in this industry as:
Buyers are well informed about different brands available in the market.
In the low-priced and very low priced segment, buyers have high bargaining power as different
brands are available and they can choose according to their taste and preferences. But in the
medium priced segment, quality, price and availability of substitutes are key factors for
substitution. In Bangladesh, mid segment is entirely dominated by JPGLand no other substitutes
are available.
Buyers bargaining power will intensify in this segment subject to the availability of other
competing mid segment brands. In the premium segment, consumers high brand loyalty
neutralizes their bargaining power.
British American Tobacco Bangladesh has a supply chain which facilitates the functions of
procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. This Supply chains exist
in both service and manufacturing department. To evaluate the performance of the supply
chain department we have to evaluate:
1.
2.
3.
4.
5.
6.
Inbound Logistics
Production
Outbound Logistics
Marketing
Human Resource
Research and Development
3.7.2 Production:
37
MISSION:
We delight our consumer with superior quality product through most flexible operation, and
minimum cost at all times.
BATBs production department has been renamed as Operations and Manufacturing
Department. In order to support the mission, this department is performing successfully the
following activities:
Product harmonization.
Meeting international quality standards.
Competitive position of EH&S in the group (Achieved 3.4 on scale 4.0).
Low cost producer.
Conversion cost Tk.43 per mille against Tk.43 per mille.
1.17
1.12
0.92
0.71
2009
2010
2011
2012
Analysis: From the above graph it is evident that conversion cost is in declining trend over the
past few years. Even 3 years back it was $1.17/mille but now it has been reduced to $.71/mille
almost 40% reduction in costs that indicates BATBs performance in this ground.
38
6.05
2009
5.18
5.39
2010
2011
4.99
2012
Analysis: Looking into the trends of product costs year on year, it is visible that BATB is striving
to reduce its costs. In 1998, product costs/mille was $6.05 but in recent year 2012, it managed
to reduce costs $4.99/mille, almost 18% reduction.
STRATEGIC INTENT--Manufacturing:
Clear core ideology.
Benchmark focus at every level.
Employees with skills to meet the most competitive performance in the region.
Clear objectives / challenge / KPI for management and shop floor employees.
Continuous improvement environment/no comfort zone.
Teams +Processes + Resource Allocation = Effective Results.
39
Achieve MRP II Class A - in new checklists. (Strategic Planning, Planning & Control, People &
Team, Continuous Improvements and New Product Development).
Human resources development.
- Strategic thinking
- Leadership and
- Team building.
Technical development.
- Effective Go Cost program.
- Technology effectiveness.
QUALITY STRATEGY:
To generate an integrated process of quality to exceed consumers expectations that includes
all managers/workforce, suppliers, distributors and systems.
Quality Focus:
CHALLENGES:
Adjustments with the Sales and Operations Planning (S&OP)
Storage
Arable Land Limitation
Weather
Unethical Competition.
Price Sustenance
Quality Improvement
STRATEGIES (Based on forecast):
Industrial requirements
Seedbed and plantation program
Crop registration and agreement
Crop inputs and logistics
Seed Planning.
LEAF OPERATION:
41
British American Tobacco Bangladesh,among one of the few operating companies in BAT has
got its independent leaf operation: leaf growing and processing. Three regions in Bangladesh
namely Kushtia, Manikganj and Chittagong grow highest quality leaf due to favorable climatic
condition.
The leaf growing is managed through about 11,500 BATB registered farmers, who grow tobacco
leaf in their lands with the financial and technical support from the company. The leaf
processing operation is done in the GLT (Green Leaf Threshing) plant located at Kushtia. GLT
runs for 5 months of the year during the leaf buying and processing time. The hourly
throughput (ideal) is 7,500 kg per hr, which cover both domestic and export requirements.
Companys Leaf Department is working side by side with the farmer to achieve the tobaccogrowing target and fulfill the local demand as well as the export market in order to achieve
highest international quality of tobacco. Leaf planning is done on 30 months forecasted volume.
The process of cultivating and growing tobacco includes:
Seed bed management.
Field practices (Newly Developed Agriculture Practices).
Mature harvesting.
Pest Management has become an increasing concern for Leaf department. Although BATB is
not directly involved in the cultivation but due to its deep involvement in the tobacco growing
process, it is the companys responsibility to create awareness and manage pest control among
the growers. This process includes:
Future Challenges:
Cost is an important factor in the supply chain. To be competitive in terms of costs, Leaf
Departments planned some activities/actions like, rearranging warehouse facility, substituting
imported quality tobacco with locally produced tobacco considering the quality parameters etc.
In order to maintain costs at certain level and for further cost minimization following programs
has been identified:
LEAF SOCIAL:
43
BATBs leaf department is actively participating in social works and thus enhancing companies
corporate reputation. Their activities are scattered mainly in the leaf growing areas with a
target group of their valued business partners (farmers).
Activities on Focus:
Forestry Education Programto educate future generation between the age group of 710 years.
Health and Hygieneto educate VBPs regarding sanitary toilet and develop healthy
environment for better health and housekeeping and reduce risks of occurring different
diseases. Around 92% VBPs erected Sanitary Toilets.
Primary education and Literacy---100% VBPs children are going for primary education
and 100% VBPs know how to sign their names. As such, it is supporting Government
program Education for All. Around 99% children of VBPs is school going.
Family Planning---Its creating basic concepts and awareness through motivational
activities.
Safety---To ensure VBPs safety, BATB arranged leaf payment through bank account for
faster and dependable payment system.
Afforestation---Its a continuous improvement process that gained momentum since
1985.
The movement of material associated with storing, transporting, and distributing goods to its
customers.
British American Tobacco Bangladesh (BATB) extends all across Bangladesh. They have their
head office and factory located in Dhaka. There are three leaf regional offices located in
Banderban, Kushtia and Rangpur. They have six regional marketing offices all over Bangladesh.
The six metro markets are Dhaka, Khulna, Mymensingh, Bogra, Sylhet, and Chittagong.
Distribution is done with the help of authorized dealers. BAT does not take their products
directly to the market. There are 52 authorized distributors that distribute the products to
510,000 outlets approximately.
Distribution is divided into three categories. They are: Retail Store, Retail Cash and Carry, and
Bazaar Cash and Carry. The distributors use their own vehicles, covered vans, cycle vans, etc to
distribute the product. And in the passive outlets, the areas are very close to the river, where
vehicles cannot go, they supply the product through boat.
Channel of Distribution
Regional Go-down: There are five regional go-down throughout the country to fill every
regional demand just at the time of need, and to overcome various uncertainties related to
physical distribution of products, every regional go-down is directly controlled by separate
Regional Manager to face the regional physical distribution challenge.
Carrying Contractor: They are the party engaged in the physical movement of cigarettes from
head office go-down to regional office go-down. Normally they are the truck owners who take
all the risk and responsibilities of physical movement of goods between two warehouses.
Distribution Warehouse: All distributors have their own warehouse, where cigarette can be
kept safely while not degrading its product quality. Distributors buy the cigarette from BATB
and from that point ownership and all responsibilities of the products go under the distributors.
Internal Carrying Agent: They are like carrying agent but carry small volume of products.
Normally they are local truck owners. They carry products from, regional go downs to
distributor warehouses. They also take all the responsibilities and risk engaged in physical
movement of products.
Opening Stock at Distributors Office: A part from the warehouse, every distributor also
maintains another stock at their office. This stock is for maintaining any change in market
demand instantly. Dealers sometimes sell cigarette through their counters to face special
situation.
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Delivery Van: All the delivery vans are owned by the dealers to assure the supply of cigarette
on the door of wholesalers, cash & carries and retailers just according to their demand. There
are two types of delivery vans. One is Scooter van and another is Rickshaw van.
Cash & Carry: They are businessmen who sell cigarette directly to consumers and at the same
time they sell cigarette to the retailers.
Retailers: Retailers are at the end of the physical distribution system of cigarette selling
products directly to the consumer.
The distribution chain shows how the product goes from the factory to the hands of the
consumers. It all starts with the factory where the tobacco is turned into cigarette and
packaged. The cigarette comes out of the factory as a finished good and is kept in the
companys warehouse. Then the tobacco product goes to 6 regional depots. From the depots,
the authorized distributors take it to their distribution warehouse. Then from the distribution
warehouse the distributors use their own vehicles to get it to the market.
3.7.4 Marketing
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Product: BATBshas a wide variety of brands in its product line. It has international premium
quality (centrally managed) brands like, Benson & Hedges (B&H) both full-flavored and lights,
and SE555; Value for money (regionally managed) brands like, John Player Gold Leaf (JPGL) both
full-flavored and lights, and LONDON; and Domestic Value for money (locally managed) brands
like, Star filter and plains; Scissors filter and plains; and Capstan.
Among its brand, BATB pays royalties for B&H, SE555 and LONDON. For all international brands
BATB needs to consult with IBG (International Brand Group) in London. No decision can be
taken without their due permission. Even for advertisements and promotions every bits and
pieces are guided by IBG guideline.
BATB has developed the capability of producing all its international brands, previously those
were used to import from BAT UK operation at Southampton factory. BATB brands are available
in three types of SKUs (Stock Keeping Units): Hinge lit (HL), Soft-Cup (SC) and Shell and Slide. All
international brands and Capstan are available in 20s HL pack. It has 10s Shell and Slide pack
on Star and Scissors and 20s Soft Cup pack on Star. Plain brands are available in 10s Shell and
Slide pack version.
Price: Competitive price is being offered by BATB while keeping pace with the competitions.
BATB products are available in the entire price segment of the market except the very low
segment. As around 87-90% of the total cigarettes are sold in sticks rather than whole pack,
price segmentation has been done on the basis of per stick price.
In the premium segment at Tk.3 per stick, the parent products are Benson & Hedges and State
Express 555, with line extension of Benson & Hedges Lights. These international brands have
excellent product image with a segment share/ volume share of 99.7%.
In the medium price segment at Tk.2, John Player Gold Leaf is the bread and butter for the
company with international image in both Full- flavor and Lights version. It has a 100% volume
share in the market.
In the Low price segment at Tk.1 plus, the brands are Capstan filter, King Size LONDON, Star
filter, Scissors Filter, Star Plain and Scissors plain. These brands have a volume share of 35.34%
declining from 56.37% 2 market share due to tough competitors.
Products are reached to the ultimate consumers through its designated distributors. BATB has
60 distributors all over the country. These distributors supply BATB products to the retailers
under the supervision of Territory officers (TOs) of the company. For 60 distributors there are
40 TOs working in their respective territory.
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Entire Bangladesh has been divided in to six geographic regions headed by 5 Regional Managers
(RMs). These regions are Dhaka Metro, Dhaka Outer, Chittagong, Khulna, Sylhet and Rajshahi.
Regions are again divided into 12 strategic areas and headed by 12 Area Managers (AMs).
Under each Area Manager, there are Territory officers who are responsible for their defined
territory. Therefore, companies managers are continuously monitoring the performance of one
or several distributors and ensuring effective distribution to all the district markets.
BATB has classified the types of outlets in 3 categories: Grocery, Convenience and HoReCa
(Hotel, Restaurant & Caf). The distributors cover groceries and convenience outlets, whereas
HoReCachannels are covered by company designated HORECA managers to promote premium
brands only in the Metropolitan cities of Bangladesh.
Major sales are done through Cash & Carries, small mobile outlets who buys directly through
distributors. Small retail outlets also takes BATBs product from some major retail stores in the
wholesale bazaar (like Mowlobibazar of old Dhaka), where all the trading takes place for all
kinds of consumable goods. These wholesalers buy cigarettes from different distributors. BATB
never encourage this particular channel, as this particular channel is very hard to monitor and
control.
Distributors of BATB are perceived as valuable business partner of the company. Therefore,
they are also engaged in various company programs like training and development, different
workshop as part of continuous improvement initiatives.
Promotion:BATBhas strict CORA guidelines for promoting its brands. Apart from CORA
guidelines, there are strict IBG guidelines for promoting international brands. For such kinds of
brands, advertisements and promotional activities are same all over the operating companies
of British American Tobacco. Again from legal point of view, under company act 294 (B), BAT
cannot run any promotions directly to its ultimate smokers like any other company.
In Bangladesh, television advertisements are banned in local broadcast television. Now a days,
other private channels like ETV, Channel Eye, ATN Bangla are used to advertise BATB brands.
Other promotional campaigns for Benson & Hedges, State Express 555 and John Player Gold
Leaf are done in other medias like Magazines, Newspapers, Billboards and through
entertainment shows like sponsoring concerts. Branded outlets for JPGL and Star are now
common type in the market to promote that particular brand. Other merchandising materials
for promoting brands are: branded in-store cabinet, street cabinet, desktop, light-box, canopy,
sunscreens and so on. There are also cycle based promotions for outlets like, poster, dangler,
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bunting, sticker, trade letter, consumer lift-let dispenser and so on. These materials are
temporary merchandising materials for promoting a particular brand on that particular cycle.
All sorts of development efforts of human resource were confined into management level;
non-management-unionized employees were focused only to technical training. Lack of
business sense; communication gap, trust & forward visibility in sharing company plan and
strategic direction were regular phenomenon for BATB that contributed to become a high cost
base manufacturing operation in the region.
How company was affected?
Due to lack of coordination between two groups, BAT Bangladesh was recognized as a high cost
base manufacturing operation in the MESCA region.
WHAT HAS BEEN CHANGED SO FAR AND HOW?
BATB now values its people as Human Capital. In 22nd November 2012 MRP II Audit, BATB
achieved CLASS A inPeople and Team Development with benchmark recognition among
BATcompanies. To be in this position, it had gone through extensive training programs including
different skills development programs for improving individual performance as well as group
performance as a whole. The company started to reshape its structural set-up by removing
barriers from early 2009.
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Actions Taken:
Introducing Open-office concept. All offices were brought into a single location and all
offices were made open.
Introducing common dining facility: Managers and employees started using the same
dinning facility at the same time.
Same Uniform:Same uniform for everyone has been introduced throughout the company
to give the importance of shop floor employees as part of one organization without any
discrimination.
Open Discussion with MD:Managing Director of the company initiated meetings with all
levels of employees where issues were/are discussed openly.
Family Day Concept: A Family Day concept emerged where all members of the
organization both management and non-management participates along with their family
members and enjoys throughout the day.
Reward and Recognition: To motivate employees at all level, BATB introduced recognition
and reward system like, Championsfor a specific month for doing something
extraordinary. As a result people are becoming more open and interactive and
participative to grab the title. This has generated a positive competition among the
employees.
Winning in our world (WOW): For driving the WOW program throughout the company,
the main drivers are Trust, Commitment and Achievementcore values of the company.
For these values,
BATB has a very good corporate reputation for excellent management practices. These WOW
values are clearly defined and employees, management & Union all are continuously striving to
achieve these values.
3.7.6 IT:
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There was a time, when IT department acted as a supporting function as part of finance
department. But now, IT department has been expanded with its own identity with the vision of
driving business through IT.
A core objective of IT is to explore IT opportunities in the business to increase the pace of
regular business activities. In the last MRP II Audit, IT of BATB has been recognized as
Benchmark within BAT companies. Within BATB, all functional activities are accelerated with IT
solutions. The important benchmark achievement is the solution named DATA WAREHOUSE, a
Decision Support System that integrates all the systems and data for making appropriate
decisions across the company.
Moreover, consumer preferences are changing. To meet the demand of their tastes and
preferences Product Development Manager and Blender are trying to develop new blends and
even to improve the current blends proactively. BATBResearch Lab is equipped with latest
equipments like Smoking Machines that measures the puff numbers/minute.
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Problem areas of BATB both in terms of external and internal aspects are as follows:
MAJOR PROBLEMS
Strategic Problems
Brand Portfolio:
Consumers in Bangladesh are very price sensitive. Cigarette Industry is of no exception.
Around 87-90% cigarettes are sold on stick and market segmentation has done also on the
basis of stick price. BATB brands do not exist in all the existing market segments. In those
vacant segments, BATB does not have any product available and therefore, it is always
under potential threat of new product entry in the market.
Increasing Excise:
Excise management is always a big concern for BATB. There is a continuous pressure for
increasing excise demand from the government. BATB has to manage the excise structure
and put constant pressure for not making any excise structure change, which has direct
effect on pricing of its brands.
Industry Shifts:
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Even till 2010s smokers preferred to smoke plain brand cigarette with a very strong and
hard taste. During 90s the smokers preference started shifting towards full flavored Virginia
cigarettes with lower delivery and king size filter cigarette. Todays industry is experiencing
a fundamental shift in its business. Now smokers want to smoke lower delivery cigarettes
and therefore, preference for lighter cigarette has been increased. To meet this industry
demand, new technology in the industry with huge capital investment is essential for overall
industry success.
Operational Problem:
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In order to resolve BATBs problem, the following alternative approaches can be undertaken to
boost up its long-term performance.
Brand Portfolio
Alternative 1: BATB has the resources available and thus, can fill up its vacant segments when it
will experience potential threat from new entry in the market.
Pros:
No need to invest money right now behind this matter. Rather can invest in
other potential projects.
Management time can be utilized in some other sector.
No guarantee that new brands in those vacant segments will be a success.
Cons:
Competitors can act proactively and launch new product category while
having collaboration with some other international competitors.
Competitors will have the opportunity to grasp the potential value and
volume share of those segments and consequently BATB will loose the
opportunity.
Alternative 2:BATB can start thinking proactively to have its presence in every available market
segment so that in future if any competition comes in BATB will be in an upper hand position.
Pros:
BATBwill grab volume and value share in those segments before anyone else.
Competitors/international competition will have hard time to establish their
brands.
As Dark Market is coming up, it will be easier for the company to establish
new brands in those segments rather than launching during Dark Market.
Cons:
Alternative 1: BATBcan think of operating in the very low segment, as it is a very potential
segment in terms of volume.
Pros:
It will be able to take the opportunity of grasping the market share with its
quality products as industry trend indicates up-trade of smokers from Biri to
Cigarettes.
Cons:
In short term, BATB might have to sacrifice profits to establish its brand in
the portfolio, as after paying excise it is not economically viable for the
company.
Alternative 2: There is no need for BATB to consider operating in the very low segment, and it
should be happy with its existing brand portfolio.
Pros:
It wont loose money and will be able to maintain its profit growth.
Cons:
Competitors are and will be capitalizing BATBs absence in the segment and
will continue grabbing the market share in this huge potential segment.
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Increasing Excise:
Alternative 1: BATBcan lobby and maintain good relationship with the Govt. officials for stable
excise payment. On this issue, the company can take proactive role suggesting different excise
slabs in order to demonstrate win-win scenario. This was done in the past and thus resulted
positive outcome for both government and the cigarette industry. For instance, As per BATBs
recommendation, tax-stamps have been implemented for cigarette industry to increase the
revenue of the government.
Pros:
Increasing Transient/Counterfeits:
Alternative 1: BATB can lobby with the Govt. and law enforcing agencies by keeping good
relationship with the government bodies, launching anti-smuggling campaign for promoting the
negative impact of smuggling in the country economy and suggesting alternatives for
controlling the smuggling. Furthermore, the company can influence Govt. to put more
restrictions to discourage counterfeits.
Pros:
Govt. will get more excises, as smuggled ones are not duty paid and thus will
get more revenue from the company.
BATB will be able to sell more and grab market share if no transit brands are
available.
It will be able to retain its reputation in terms of quality standard if there are
no counterfeit products.
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Industry shifts:
Alternative 1: The essence of fortify and defend is to make harder for firms to enter and for
challengers to gain ground. Therefore, company can do extensive research in order to identify
the potential long-term growth in the lights segment. It can also create a state of readiness
within the company for different low delivery cigarette for different price segment. The
company can launch brands on trial in the test market as a part of niche strategy to identify
customer group for low delivery smoke quality.
Pros:
Building new capacity ahead of market demand to discourage competitors
from adding capacity of their own.
Proactively respond to the industry shifts and taking necessary measures
proves BATBs leadership in the cigarette industry.
Cons:
More money involvement in research and development.
Potential loss of market in terms of Value share:
Alternative 1: BATBis the market leader in Bangladesh cigarette market and its premium (B&H,
SE555) and value for money (JPGL) brands are perceived as international and high quality
product. Therefore, company need to continue Stay-on the Offensive Strategy focusing on its
key brands.
Pros:
Will help for costs reduction in each value chain activities.
Quality enhancement.
Proactively taking market initiatives to increase market growth.
Cons:
Involvement of more research & development.
More capital investment.
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3.10 Recommendations
There is nothing called best solution. Looking at BATB, in market the company is in the best
position and enjoying the market leadership. Following recommendations can be made to
support the companys overall strategy for further enhancements of its operations in this
country:
Continuously monitor 10 years strategic plan and its execution phases year on year
to have an overall balanced planning inline with the market demand and its
responses, and find out whether plans are aligned with the global corporate
strategies or not.
Identify opportunities and build on strengths
Brand portfolio should include brands in different price segments to fill up the gaps
(eg. at Tk. 2.5, 3.5 and even introducing super premium brand).
Should think seriously for operating in the very low segments.
Should continuously monitor and reshuffle its strategic and tactical brand portfolio
as per the industry trend. For instance, can think of giving effort behind SE555.
BATB should try to achieve the economies of scale in order to reduce cost of
production per unit. Production Planning should be more focused on utilizing the
entire productive asset in the production floor.
BATBshould outsource its daily administrative activities and put concentration more
on its business development activities.
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Shifts/Plant Manager:
Allocate substantial resources in the potential high growth sector.
Monitoring production as per Master Production Schedule (MPS).
Concentrate on TQM for zero defect strategy
Demand/Marketing Manager:
Brand Manager: Brand managers are the custodians of BATB brands. Through
research and development on consumers, competitors and media, they need to
find out consumers needs and wants and try to satisfy those by getting aware of
market demand in developing varieties of brands for different price segments.
If any of the above assumptions change due to external forces, there is a possibility that BATB
will not be able to achieve its targeted plan.
Therefore, the contingency plans are recommended as follows:
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Diversification:
As cigarette industry is a controversial industry, the company might think or diversifying to
unrelated products like ITC (Indian Tobacco Company) and expand its business horizon.
New style of brands in the portfolio (Low delivery and US blend cigarette):
As the tastes and preferences of the consumers are shifting towards low delivery cigarette, the
company can gear up its resource and technology and be at the state of readiness so that
demand can be created in the market. BATB can even think proactively for US blend of
cigarettes to compete with international competition Marlboro by Phillip Morris.
It is therefore, suggested that a proper study should be carried out to identify each of the
contingency plan. Once the study is done, company should be prepared to implement the plans
within the shortest possible time.
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3.13Conclusion
BAT has ensured value addition at every stage of the supply chain. BAT must further focus on
price, quality and performance of their product lines and brands to stay competitive in the
industry. Although people are becoming more aware of the health hazards of smoking, but
customers who smoke on a regular basis face tremendous difficulty in giving it up. Moreover,
the increasing activities of anti-smoking lobbyists will not have much effect on the regular
smokers. Still, BAT should contribute extensively on research and development for better
variety of tobacco leaves that will be less injurious for health and more cost effective for the
customers. On account of advancement in microbiology, BAT should involve scientists more
frequently to come up with a variety that eliminates the harmful qualities of tobacco and only
the useful qualities are available for consumption. This can trigger a complete revolution and
can be sold as some product of great herbal value
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3.14Reference
1. Donald R. Cooper/Pamela S. Schindler (9th
Edition) Business Research Methods.
2. Porter ,ME(1996)what is strategy? Harvard Business Review, November
December, 61-78. The value chain.
3. The Horizontal Corporation".Business Week.1993-12-20.
4. Michael Porter in his 1985 best seller, competitive Advantage: Creating and
Sustaining superior performance
5. Micrilinks (2009)[ value chain Development Wiki http://apps.develebridge.net/
Amp/index.php/value Development]
6.http://www.bat.com/group/sites/uk
7.http://www.linkdin.com/title/territory+officer/atbritish+American.bd
8. http://batb.bdjobs-server.com/SubLinks.aspx?subId=63
9.http://batb.bdjobs-server.com/
10.http://en.wikipedia.org/wiki/Value_chain
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